Cemex SAB de CV (CX) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 CEMEX earnings conference call. My name is Mariso and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Hector Medina, Executive Vice President of Planning and Finance. Please proceed, sir.

Thank you. Good morning and thank you for joining us for our fourth quarter conference call.

As you are aware, we will be having our CEMEX Day this coming Wednesday, February 4, with presentations on different topics from senior management. During this event, we will be discussing our 2009 guidance for our financials and operations. The event will provide ample time for us to discuss our expectations and the underlying assumptions.

The CEMEX Day proceedings will be webcast live, to enable the broadest participation in the event and allow listener the opportunity to pose questions via the webcast line. Due to space and cost considerations, physical attendance is limited, so we encourage your participation through our webcast. For more information, please visit our website and follow the link to the event, where you will see a detailed agenda with the presentations.

In light of this, we would be very much -- very much appreciate focusing the question and answer session today on fourth quarter results and related matters. And now I will briefly review our yearend 2008 results. Then, our CFO Rodrigo Trevino will follow, with a discussion of our financial results.

The year 2008 was one of extraordinary volatility in the financial market and economic weakness that continues to spread throughout the global economy. We will discuss the consequences this has had for CEMEX, as well as the measures we have taken in response to the challenges that this environment has presented.

Fourth quarter 2008 was one of the most challenging quarters in recent history with EBITDA generation reflecting the overall tightening in the global credit market, lower consumer confidence and lower activity across all sectors in most of our markets. Foreign exchange fluctuations also had a negative impact on our results.

During 2008, on a like-to-like basis for the ongoing operations, consolidated domestic cement and ready-mix volume was down 11% and aggregates volumes decreased 13%. However, consolidated prices in US dollar terms for the year were up by 7% for all of our core businesses. Our EBITDA during the fourth quarter reached $808m, a decrease of 27% versus the same period last year, mainly as a result of lower contribution from our US and Spanish operations and, to a lesser extent, the exclusion of our Venezuelan operations starting August 1, 2008.

For the year as a whole, EBITDA reached $4.34 billion, a decrease of 9% on a like-to-like basis for the ongoing operations. Net sales decreased 4%, also on a like-to-like basis, reaching $21.7 billion. Our free cash flow after maintenance capital expenditures was $2.6 billion during the year.

Last September, we announced the global cost reduction program, with a target of $500 million in cost savings at the EBITDA level for 2009. Due to the continued deterioration of -- in the operating environment, we now expect this effort to be extended and lead to total savings of $700 million, on the same terms as previously announced.

Efficiency improvement initiatives are expected to represent about 60% of the total sales, while right-sizing efforts will represent the rest. These initiatives include headcount reduction, capacity closures across the value chain and a general reduction in global operating expenses. These savings will be the subject of a dedicated presentation at our CEMEX day.

Our goal is to reduce the Company's cost structure to a level that is consistent with the decline in our markets. We think it is important to remind you, however, that we manage our business with a long-term view. We are determined not to undermine our strong global franchise, which underlies our capacity to create long-term value. High operating leverage leads to loss of economies of scale. However, when our market turns around, that operating leverage will be a very positive element for fueling profitable growth.

A critical part of our strategy to meet the challenges ahead is the rationalization of our maintenance and expansion capital expenditure programs for this year. As you know from our third quarter call, we announced a significant reduction in our maintenance and expansion CapEx, from close to $2.2 billion in 2008 to $850 million this year.

In light of the continued deterioration in demand throughout all of our markets, however, we now are further reducing maintenance and expansion capital expenditures to about $650 million. This reduction is also being implemented in order to maximize our free cash flow generation available for debt reduction during the year.

Regarding asset sales during the fourth quarter, we sold our Islas Canarias, Canary Island operations for EUR162 million. In addition, the sale of our assets in Austria and Hungary is currently undergoing the antitrust approval process and we expect to close these two transactions during the first quarter, with net proceeds of about EUR300 million. We are pursuing additional initiatives to divest non-core operations, including our concrete pipe business in Australia as well as others. We expect our asset divestment initiative to generate a total of approximately $2 billion in 2009.

We are also pleased that we are making significant headway in our refinancing strategy, as outlined in our press release two days ago. Rodrigo will discuss the details of the refinancing later in the call.

Now I would like to discuss the fourth quarter and full-year performance of our principal markets. In Mexico, our cement volumes decreased 3% during the quarter, versus the same period in 2007. Full-year cement volumes declined 4%. Ready-mix volumes grew by 1% during the quarter and declined by 6% for the full year 2008. Our results reflect the growth in the infrastructure sector, which was mitigated by lower activity in the non-residential sector.

EBITDA margin improved by 130 basis points during 2008 despite the increase in input costs. This increase is the result of continued improvement initiatives, including fuel substitution, self-generated electricity, substitution of raw materials, optimization of our distribution channels and reductions in SG&A. For 2009, we expect gross domestic product to decline by about 2%.

President Calderon's program to promote infrastructure through the national infrastructure plan, and housing by increasing the number of mortgages and amounts granted for low-income housing, are expected to partially mitigate the expected decline in the economy. These programs should have a positive impact on construction, although the commercial and industrial sectors will remain subdued.

Investment in infrastructure continued its positive trend. During the third quarter of 2008, infrastructure spending was 29% higher than in the same quarter of 2007 and 30% higher than in the second quarter, signaling a shift in the volume trend from the last three quarters.

In order to promote growth and employment, the Government recently announced a national agreement to promote family wellbeing and employment, which allocated MXN14b for state infrastructure and MXN17 billion for PEMEX infrastructure. These resources are in addition to the MXN65 billion from the PICE, or Program to Promote Growth and Employment, out of which an estimated MXN27 billion are intended for cement-intensive infrastructure projects. Based on data from the INEGI, we estimate total infrastructure spending in 2009 to increase by 25% versus 2008.

The formal residential sector slowed during the second half of 2008, reversing the trend shown during the first half of the year. Financial institutions, which originate about 20% of the total number of mortgages granted in Mexico each year, or about 40% of formal housing investments, reduced the number of credit and amounts granted during the fourth quarter. This reduction is a reflection of current credit restrictions.

The CONAVI, or National Housing Council, expects an investment in the formal residential sector of MXN300b for 2009 and a 13% increase in nominal terms versus 2008, reflecting an increase in the formal construction segment. This sector is expected to represent nearly a third of cement consumption during the year.

Investment in the informal, or self construction sector, is expected to be weaker during 2009 due to lower employment and aggregate wages and restrictions on credit, which will be partially offset by higher remittances, in peso terms, from the United States to Mexico based on the currently prevailing exchange rates. Remittances due in 2008 were down 3.6% in US dollar terms, after a third year of recession in the construction sector in the United States.

As we announced last week, the first phase of our wind farm power generation project, Eurus, will be ready this first quarter of 2009. The entire project will be operational by the end of this year. This wind farm will supply about 25% of our electricity needs in Mexico and complements our core generation facility which is already in place. Both projects will make us nearly self-sufficient with respect to our electricity needs in the country.

In the United States, cement volume fell 26% during the fourth quarter. On a like-to-like basis for ongoing operations, revenue sales volume declined by 35% and aggregate volume decreased by 37% during the fourth quarter versus the same quarter in 2007. For the full year 2008, and on a like-to-like basis for the ongoing operations, cement volumes declined by 21% and ready-mix and aggregate volumes declined -- each declined by 30%.

The fourth quarter like-to-like decline in sales volumes was driven mainly by the continued decline in the residential sector and tighter credit conditions, which have negatively impacted all the demand sectors. In addition, due to the recessionary economic environment, many customers closed operations for an extended period over the holiday. This is the worst decline in cement volumes that we have experienced in the United States in recent history. From the 2005 peak to 2008, cement volumes nationwide have declined by more than 25%. For our markets, the decline has been even worse. However, we are pleased with the drop in the volume of imports and the announcements regarding capacity rationalization in response to this unprecedented decline.

Despite this historic decline across our core business, prices for most of our products have remained resilient for the past two years. As regards to 2009, we have announced two pricing actions. One for ready-mix, at $25 per cubic yard price increase implemented last October 1, and the other to cement, a nationwide $15 per short ton price increase in cement starting January 1. It is too early to determine, however, how much of these increases will be realized.

The public sector has been more stable, historically speaking, than the residential and the industrial and commercial sectors. We have continued to see increases in construction put in place, in nominal terms, for the public sector, including streets and highways and other public construction. These increases have been reduced, however, and in some instances fully offset, by input cost inflation and we have seen a decline in new project work as the state fiscal conditions have worsened.

The economic stimulus package currently under discussion by the Government will cut taxes, provide federal aid to the states and invest in different programs related to infrastructure, education, energy, technology and healthcare, to create jobs and support long-term economic growth. President Obama has indicated that this stimulus package will include the largest public works funding program since the creation of the interstate highway system more than 50 years ago.

While there is still uncertainty on the final location and designing of the package that will be dedicated to infrastructure and other cement intensive projects, we are encouraged by the President's focus on infrastructure as one of the most leveraged and badly needed investments to create jobs and set a solid foundation for long term economic growth and global competitiveness.

The stimulus package should also prove to be a positive element in the renegotiation of the federal highway program, SAFETEA-LU, which expires in September of this year. The long-run economic benefits from infrastructure investments are expected to drive many states to seek additional funds from bond programs and public-private partnerships.

Tight credit conditions and the uncertain economic environment affected the industrial and commercial sector during 2008. In this sector, contract awards, a leading indicator of construction, declined 27% in 2008. The residential sector continued its decline during the fourth quarter. Housing starts, the fundamental driver of cement demand in this sector, decreased by 33% in 2008 compared with 2007. Our markets have seen a steeper decline as high-growth residential markets have decreased at a more rapid pace. We are encouraged by improving affordability of houses, which should lead to higher sales as the economic environment stabilizes.

Overall inventories have shown signs of stabilization in spite of historic levels of foreclosures. The National Association of Home Builders resolved to act -- also actively lobbying for a fixed housing price program that includes a tax credit and interest rate subsidies for first-time home buyers. In addition, the Obama administration is working on a more comprehensive and effective foreclosure mitigation plan to stabilize the conditions in the housing sector.

Demand conditions, going forward, are expected to improve as credit makes its way into the real economy, which has not occurred yet. Second, input cost deflation will translate into higher effective demand and consumer confidence. Lastly, and most importantly, the fiscal stimulus package is expected to be the key catalyst for renewed demand.

In Spain, cement volumes decreased by 48% and ready-mix volumes decreased by 43% during the fourth quarter. For the full year 2008, cement main volumes decreased by 30% and ready-mix volumes decreased by 26%, versus the previous year. Prices in the country continued to be resilient, due to an important import buffer and capacity rationalization in response to the drop in demand. Construction activity has been affected by the economic slowdown and limited credit availability. Cement consumption in our markets continues to fall at a faster rate than the overall market during the quarter. Many of the regions we're in, which in previous years had shown above-average growth, now have lower construction activity.

The residential sector continues to decline. In 2008, housing starts, a leading indicator of the sector, are expected to decline by about 60% to about 250,000. For 2009, they are expected to decline even further to 170,000. This will continue to translate into a significant decline in cement consumption for the sector.

The non-residential sector is also expected to decline during 2009. Lack of confidence and financing difficulties have affected the sector. In this environment, infrastructure has been relatively more stable, but still insufficient to compensate for the falling demand in other segments. We're cautiously optimistic over the contribution of this segment to our business in light of a federal government announcement of an EUR8 billion program for local infrastructure projects to be put in place over a one-year period.

In the United Kingdom, cement volume decreased by 26%, ready-mix volume, on a like-for-like basis, declined 27%, and aggregates volume declined 24% during the fourth quarter of 2008. For the full year 2008, cement volume declined 16%, ready-mix, on a like-to-like basis, fell 17% and aggregates volume decreased 11%, versus the previous year.

The housing, industrial-and-commercial and infrastructure sectors continued to be weak. Construction is expected to continue to decline during the first half of 2009. Potential relief from interest rate reductions should start to mitigate the decline in the private housing sector by the end of the year. The industrial-and-commercial sector is expected to remain subdued. On the infrastructure side, there are preliminary talks of additional spending, but it is too early to say if they will materialize.

In France, our ready-mix volume decreased by 9% during the fourth quarter and remained flat during the full year 2008. During the fourth quarter, the residential and industrial-and-commercial sectors were down considerably, reflecting the lower economic activity. We expect these two sectors to continue to decline in 2009, as indicated by the decrease in building permits that we saw in 2008. The government has announced a EUR25 billion program, which is expected to commence during the second half of this year. About 20% of this program will be directed to infrastructure projects such as dams, railways and highways.

In Germany, our domestic cement volumes were flat during the fourth quarter and increased by 4% during the full year 2008, versus the comparable period in 2007. Although non-residential permits were up 25% during the first half of 2008, many industrial-and-commercial projects have been postponed or cancelled. The civil works sector had a positive performance during the year, but declined during the fourth quarter. In general, the different sectors reflected the deteriorating business climate and low confidence.

For 2009, we expect the residential and industrial and commercial sectors to continue their downward trend. The government has announced a EUR50 billion stimulus program for 2009 and 2010, which will focus on investment and tax reduction. Approximately EUR14b will be spent on infrastructure-related projects.

In Eastern Europe, namely Poland, Croatia and the Czech Republic and Latvia, domestic cement consumption decreased by 7% for the full year 2008, versus the same period in 2007. For 2009, we expect the weighted average GDP growth rate to be about 1%, down from 4.3% in 2008. Relatively high trade links with the Eurozone and the negative credit environment will affect growth in the region. Construction is expected to be affected, as the full negative effect of credit restraint in the residential and industrial-and-commercial sectors are still to be felt. However, infrastructure related projects supported by EU structural funds are expected to mitigate the decline in demand for building materials, in most cases.

In Colombia, we saw cement volume decline by 11% in our operations during the quarter, and by 3% during the full year 2008. Construction during the fourth quarter declined across all sectors. For 2009, we expect some growth in the infrastructure sector towards the second half of the year, as the Government reactivates projects. The government recently announced that it will invest nearly COP25 billion in infrastructure in 2009. Infrastructure spending will partially mitigate the expected drop in the self-construction and industrial-and-commercial sectors.

In Egypt, domestic cement volumes increased by 26% during the fourth quarter, and by 8% for the full year 2008, versus the same period in 2007. Pent-up construction demand after the holidays, and lower steel prices, drove cement volumes in the fourth quarter. During 2009, infrastructure and middle and low-income housing are expected to drive cement consumption. The government has announced a EGP15 billion program to stimulate the economy, although it's still -- it has still given no details on which sectors they plan -- the plan will support.

In our operations in Australia, ready-mix volume for the fourth quarter decreased by 8% and aggregate volume decreased by 3%. For the full year 2008, ready-mix volume increased by 6% and aggregates volume increased by 5%, driven mainly by the infrastructure-and-commercial sectors. During 2009, the infrastructure and commercial sectors are expected to decline from the high level reported in 2008. The decline reflects lower mining and resource activity and a more challenging credit environment.

The government has announced AUD10.4 billion in spending since the global crisis hit Australia last September. The plan includes cash for families, pensioners and homebuyers, which is expected to favor the residential sector, and AUD4.7 billion to improve ports, roads, rail and education facilities. A second stimulus package may be in the offing.

In response to the challenging times we are facing, we are, first and foremost, committed to a significant reduction in our debt level. We will accomplish this through our asset divestment initiative, which we expect to yield about $2 billion this year, the realization of $700 million in cost reduction efforts, and the rationalization of our maintenance and expansion capital expenditures to a maximum of $650 million. Thank you for your time. I will now turn the call over to Rodrigo.

Thank you, Hector. Good morning, everyone, and thank you for joining us today. Our performance during 2008 reflects the general slowdown in the global economy. EBITDA declined due to lower volumes, partially mitigated by resilient prices in many of our markets. Our consolidated EBITDA margin for the fourth quarter decreased 0.9 percentage points, mainly due to lower margins from the US and Spanish operations, which were partially mitigated by the contribution from the temporary excess emission allowances sold during the quarter.

SG&A expenses as a percentage of sales increased from 20.6% in the fourth quarter of 2007 to 21.8% last fourth quarter, due to lower economies of scale resulting from lower volumes, and an increase in transportation costs, which were partially offset by the cost reduction initiatives we have currently in place.

During the quarter, our free cash flow after maintenance capital expenditures reached $474 million, 29% lower than the same period of 2007. For the full year 2008, free cash flow after maintenance capital expenditures was $2.6 billion, 1% higher than last year. We're pleased with the 60% conversion rate of EBITDA into free cash flow after maintenance capital expenditures for the year, especially in light of the difficult current macroeconomic environment.

The year 2008 was one of high volatility in the international energy market. During the year, our kiln fuel and electricity costs, on a per ton of cement produced basis, increased by 16% versus 2007. We continue to develop new ways to increase predictability and reduce volatility in our energy input costs. We remain committed to increasing the use of alternative fuels in our operations and continue pursuing clean development mechanism projects, such as the wind-driven 250 megawatt power plant in Mexico which Hector has already mentioned.

During the quarter we recognized a loss on financial instruments of $911 million, due mainly to the depreciation of the Mexican peso and also to equity derivatives related to CEMEX and Axtel shares.

During the quarter, we significantly reduced the volatility of our derivative strategy, as we outlined on the call discussing our third quarter results. Notional amounts of our foreign exchange and equity derivatives decreased by 85% and 17% respectively, versus the end of the third quarter. The notional amount of our interest rate derivatives increased 5% during the quarter, mainly as a result of the reclassification of a peso-US dollar cross-currency swap, for $549 million, from foreign exchange to interest rate derivatives, as the currency portion of this derivative has been eliminated.

Mark-to-market, excluding positions closed out, ended the year at a negative $456 million. There is $371 million in cash collateral related to these positions that has been posted as margin and which is not part of our cash on hand, as we do not expect that it will be recovered. So, the difference of $85 million represents our residual net liability.

The cumulative effect of our financial strategy during the second half of the year resulted in a net debt reduction, adjusted by the conversion of the $1.05 billion bank facility into a term loan of $735 million, in US dollar terms, which is in excess of the free cash flow after expansion, capital expenditures invested and dividends on our perpetuals. And this is despite the cost of closing out derivative positions and uses of cash to meet margin calls.

During the quarter, we recognized an impairment loss on goodwill and other intangible assets of approximately $1.5 billion. Impairment test is done once a year during the last quarter, or whenever a significant adverse event occurs. The impairment loss is included in the other expenses line in our income statement.

With regard to taxes, we benefited from the recognition of a deferred tax benefit of $2.3 billion in our income statement during the fourth quarter. This benefit is a result of the tax consequence of the impairment expense we've already discussed, lower income and restructuring charges, which reduced high-tax jurisdiction income and the resolution of several tax disputes with authorities in various jurisdictions for which we had created reserves in prior years. Although the deferred tax benefit was a non-cash item during the fourth quarter, free cash flow will be positively affected going forward as cash taxes to be paid are now expected to be lower, going forward.

During the fourth quarter, we reported a majority net loss of $707 million. This was due to lower operating income, the loss in financial instruments and the impairment expense, all partially mitigated by the recognized deferred tax benefit.

Looking at our capital structure, our interest coverage for 2008 increased to 4.9 times, from 4.8 times last quarter. Improvement in the interest coverage is a result of the lower interest expense, given the floating rate nature of our debt. Our leverage ratio under our amended definition, which I will describe shortly, increased to 4 times from 3.4 times at the end of the second quarter -- I'm sorry, at the end of the third quarter. Net debt increased by $1.5 billion during the quarter, mainly as a result of the conversion from equity into a term loan maturing in 2011 of a $1.05 billion facility with a group of banks.

This facility was treated as equity, for accounting purposes under Mexican financial reporting standards, because it had an interest deferral provision and an option for CEMEX to indefinitely extend the maturity of the principal amounts. Now the converted term loan is reflected under our total debt.

Payments related to our derivative positions also increased net debt during the quarter. We're very pleased with the vote of confidence that we have received from our banking community. We have successfully closed our refinancing plan, which extends the maturities of a significant portion of our short-term debt into 2010 and early 2011.

The final results of this refinancing plan were as follows. First, we refinanced $2.3 billion of short-term bilateral facilities or originally scheduled to mature in 2009 and early 2010. The final maturity of the amount refinanced is February 2011 with amortizations at the end of this year and during 2010.

Second, we extended to December 2010 $1.7 billion of the $3 billion syndicated loan facility which was originally due in December 2009. And third, we amended the definition to mitigate foreign exchange distortions and increased the level of our leveraged ratio covenant in our existing syndicated loan facilities, among other conditions.

The new covenant ratio at CEMEX Holding level is 4.5 times at the end of 2008, going up to 4.75 times in June 2009, and gradually decreasing to 3.5 times by September 2011.

Consequent to the refinancing plan, our maturities during 2009 are approximately $4.1b. We have been recently encouraged by the reopening of the fixed-income markets in the United States and Europe and, to a lesser extent, in emerging markets. As such, we will monitor these markets and other available sources of funds to support our future refinancing needs.

During the quarter, we also issued, under our Certificados Bursatiles program, long-term notes for MXN970m which mature in September 2011. We also issued various short-term notes under the program, with a partial guarantee of the government -- of the Mexican government through NAFIN. The outstanding amount of these notes was MXN1.4b at the end of the quarter.

Our priorities in the short term will continue to be to pay down debt. To do this, we will significantly reduce our capital expenditure programs. We will continue to implement our global cost reduction initiatives. And we will use as much of our free cash flow as possible to reduce debt. We will also pursue various initiatives to divest non-core assets.

Finally, and as always, I have to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future, due to a variety of factors beyond our control.

And now we will be happy to take your questions.

(Operator Instructions). And our first question comes from the line of Esteban Polidura from Merrill Lynch. Please proceed.

Thank you. Good morning, Hector and Rodrigo. Two questions, if I may. First, I saw you increased the notional amount of your interest rate derivatives and so can you please explain the kind of interest rate derivatives you entered into and the rationale behind this?

And second, is it possible to know how much of the 1.9 billion positive income tax during the quarter was related to the goodwill impairment? Thank you.

Yes, I'll take the first question. On the increase on the interest rate derivatives, primarily it comes as a result of closing out the cross-currency exposure on a cross-currency derivative between pesos to US dollars where we closed out the currency exposure portion. But the interest rate portion remains open. And so therefore, we reclassified that derivative from a cross-currency derivative, as was reported in the third quarter to now an interest rate derivative because there is no longer exposure to the currency.

And the remaining increase also has to do with a reclassification from a derivative related to the club loan with the perpetuity option, which is -- remains open and we intend to close out when the conditions allow.

I'll take the second part of your question, Esteban. And I would see that roughly S400 million to S450 million related to the goodwill impairment.

Great. Thank you very much.

Thank you.

And our next question comes from the line of Nick Sebrell from Morgan Stanley. Please proceed.

Hi, gentlemen. Could you talk a little bit about capacity changes that you've been seeing both in the fourth quarter, over the year, and maybe a little bit about expectations going forward? How much capacity are you, particularly in cement, delaying or canceling or closing? And what have you seen from your competitors, and particularly in the markets, of course, of US, Mexico and Spain?

Well as I mentioned in the remarks, we are in most of our markets, the main markets, looking at rationalization of capacity throughout the industry. And we see that as a very positive sign of people really taking a view to the market situation. And we've seen different degrees of debt in terms of capacity rationalization in the US. The fact is that imports have absorbed much of the demand decline up to date. But since the import cushion is almost gone, there are those who are shutting some -- shutting down some capacity. And some have also announced delays in expansion plans.

We estimate that about 10 million tons of capacity have been shut down by the industry as a whole. In our case, we have shut down 2.3 million tons in the last two months. Cancellation or pushback of projects, that probably totaled around 7m tons. In other places, like in Spain, we've closed some kilns for periods of time, which we believe will translate into a reduction of about 24% of clinker capacity. Ready-mix plants have been shut down. That represents about 18% of the volume.

In places like Mexico, also we've seen capacity expansions to be postponed, like the one of Cruz Azul that was initially to be online in '09 is now being postponed as we understand, and some others. These are only examples. My sense is that throughout our markets in our industry, these are -- this is happening. The industry is adjusting to the situation of the markets and to demand.

Are you seeing any of your competitors act irrationally or unexpected imports to places, whether it's the US or otherwise, because of overcapacity in other regions nearby, for example, in the northern part of South America, cheap capacity that exists that could ship into Texas, or something like that?

No, nothing that is in the irrational field. There are some, of course, trading actions and some opportunities being taken, but nothing that I would qualify as irrational.

Okay. And last question, and I apologize for making it three parts. But pricing that we've seen from one of your competitors being rather soft, double-digit declines in California, can you comment on that or add? Have you seen anything like that?

Yes, we noticed that. And we think what's happening there is the pricing is due to the fact that the -- one of the producers is selling to the industry, which tends -- that's wholesale prices. And then that is, of course, causing the average prices to decline significantly.

Okay, understood. Thank you very much.

But that's for that particular producer, not for the rest of the industry.

And our next question comes from the line of Vanessa Quiroga from Credit Suisse. Please proceed.

Thank you. Good morning. A question for Mr. Rodrigo Trevino about financial structure. Could you specify whether your debt maturities are dated as of the fourth quarter for each year, 2009, 2010 and 2011?

The second part of the question would be if you are able to disclose, what was the average marginal cost of that debt, given the refinancing strategy?

And a third quick question would be how much of the cash balance that we see in your results would be available to pay debt? This means that it's not restricted because of margin calls, etc. Thanks.

Yes. We'll take it in parts. The maturities on the debt for 2009 are slightly above $4 billion. We intend to reduce that during the year by $3.6 billion between free cash flow and proceeds from asset divestitures. We have maturities in 2010 which are smaller than that. And then we do have important maturities in 2011, probably in excess of $7 billion.

And so what we want to do from now until the middle of 2010 or, in any event, well below -- well before 2011 is to strengthen our capital structure by reducing debt, paying down debt as much as we can, and also by taking advantage of markets when they do open up, to extend the average life of our debt so that by the time we get to the middle of 2010 or thereabouts, we can be in a stronger position to renegotiate or refinance some of the maturities that we will have to refinance, of 2011.

Of course, most of these maturities will come at the end of 2011. When we acquired Rinker, we put in place bank financing facilities with two tranches, one $3 billion facility coming due in three years and another $3 billion facility coming due in five years. And so that would be December 2011, we have a $3 billion maturity coming due.

Now regarding your question on the average cost of our debt, we estimate currently that our weighted average cost of interest expense is slightly less than 6%. This is already including the fact that now more than 10% of our debt is in pesos at an average cost of more than 10%. And of course that increases the weighted average cost of the entire debt.

The average cost of our dollar debt today is lower than 5%. And the weighted average cost of our euro debt is slightly higher than 5%. So yes, we are paying a higher spread on the debt that we have refinanced. But we're also benefiting from the lower base rates, as LIBOR and Euribor have come down. The other part of your question was --

Regarding the cash available.

Yes. The portion of the cash that has been posted as margin, we no longer include in cash because we don't expect that we will recover that cash. And so the cash that we report is the cash that we have for operating purposes, as well as immediate short-term obligations. And of course, in today's very tight credit conditions, we would like to increase the level of cash we hold on hand. And to that extent, if we do see a window of opportunity to go to market so that we can bolster our cash on hand, we will. And we will monitor all markets at all times.

Thank you, Rodrigo.

Thank you.

Thank you, Vanessa.

And our next question comes from the line of Gonzalo Fernandez from Santander. Please proceed.

Hi. Good morning. Just on the asset sales, you estimated that you can sell assets for about $2 billion. Can you quantify what percentage of EBITDA those asset sales generate annually?

And the second question is that with the debt maturities of $4 billion in 2009, assuming that you can pay probably around $2 billion with internal cash flow or a little more, if you don't succeed in the sale of assets to pay the remaining, I assume you would be planning to further extend these maturities, if I'm correct.

Well, let me first tell you about the -- our asset divestitures. As we have already announced, last year we closed and received payment for the sale of our Islas Canarias assets in Spain. We also closed the divestiture of the Austrian and Hungary operations, which is currently under antitrust approval process and should be, as we expect, paid on the first quarter -- during the first quarter of this year.

Now we also expect to sell, as we explained, $2 billion or even more if it's possible, of assets during the year, but this is, of course, out of a list of assets that we have identified as non-core. But we think that there is, here, a need to analyze continuously the market and monitor what assets could be better that are sold. So there is no particular idea in this. The sense is that we will sell the assets that can be sold. And therefore, it's difficult to say what EBITDA would be disposed off. And then some of the assets we will be selling do not generate EBITDA in relation to that. So that is, in broad terms, the answer to your question. I would refer to Rodrigo for the second part.

Yes. Of course we will be looking for opportunities to refinance existing upcoming short-term maturities into the long term, whether we sell assets or not. It's not one or the other. We will do both, if given the opportunity and if the market is there. We want to lengthen the debt maturity profile over debt. But at the same time, I think it's important to say that we are committed to lowering the level of debt so that we can regain flexibility and be in a better position to refinance on acceptable terms what we need to do in 2010.

And so we will be very much proactively looking at the potential divestitures of the assets that we want to sell, or looking at the assets that others want to buy, so that we achieve both objectives, reducing the debt and lengthening the debt maturity profile of our debt.

Okay. Thank you, Hector and Rodrigo. And see you next week.

Thank you.

Gonzalo, thank you.

And our next question comes from the line of Mike Betts from JPMorgan. Please proceed.

Yes, thank you. I had two questions, if I could, please. The first one, could you explain to me a little bit more about why these perpetuals were converted into loans, whether that was driven by CEMEX or it was driven by the holders. And I guess probably the key thing is the remaining, just over $3 billion. Is there any risk that that gets converted into loans and therefore included in the net debt to EBITDA covenant?

And then my second question. You talked about the increase in energy costs in 2008. I presume, in 2009 you'll start to benefit from the declines. I presume there are lags. Is most of that benefit going to come in the second half? And probably difficult to quantify, but in broad terms, could you give us some idea of how much of the increase that Rodrigo referred to in '08 you might see reversed in '09? Thank you.

Yes, let me take the first question. On the $1.05 billion club loan with banks with an option to defer into perpetuity, that transaction was put in place in the first half of last year as a bridge transaction to a capital market transaction that we intended to execute in the short term. So what we intended to do at the time was to go to market again for another $1 billion of long-term securities with an option to perpetuity and to defer the coupons.

Of course, the market never opened up. And now we don't see the possibility of going to market at all. And so the purpose of that bridge was no longer there. It was never intended that we would put this facility in place so that we would not pay banks the coupons or the principal.

And the conditions that we negotiated with the banks were very, very onerous and, of course, put the incentive not to do so. And we maintained an option to convert that facility into a term loan if, for example, the market disappeared and it was no longer a bridge to a capital market transaction. As we concluded that was the case and we felt that it was in our best interest to convert that into a term loan, we included it in the negotiations to obtain the amendment and the extensions that we negotiated with the banks last quarter.

And for the second --

The other $3 billion are already perpetuals, so there's no issue with them.

Well, those are placed with the market. The bulk of it is -- we have a call option, not until 2016. So there is nothing we can do, really until 2016 but to hold onto those capital market securities.

Okay.

And in the case of energy, I think --

Yes. Well, first of all, Mike, on Wednesday next week we should be able to give you details and a more clear view on what we expect for our energy bill in '09 versus '08. It will come down. Certainly, prices of energy are not at the same level we have today. Let me just say that there are different components to the energy bill. And there are, of course, inventories in our operation that are -- have been bought at prices that were higher. So we have to work out those inventories first.

Then the other issue is that we have some contracts that were already at relatively low prices, long-term contracts. So they will not reflect this decline in energy prices. And then there's transportation which, of course, in different places acts differently. We have closed some capacity in some places, so we have to travel more. So that part of the transportation cost will increase. But if the fuel for transportation decreases, that might get compensated. So we will be able to give you more details next Wednesday.

Okay. And Hector, the same -- would it be the same answer if I asked how much of the $700 million of cost savings you might actually see contribute in '09? Is that something you're planning to give us more detail on Wednesday on, as well?

That is true, as well, because as I said, remarks and full presentation will be made on this particular issue.

Okay, thank you very much.

Thank you.

And our next question comes from the line of Steve Trent from Citigroup. Please proceed.

Good morning, gentlemen.

Good morning.

A couple of my questions have already been answered. I was just curious, with respect to your US outlook, it was interesting to see, in Mexico, that you guys are erecting a wind farm to help on the electricity generation side. Here in the United States, for example, of course we no longer have a White House that's going to be there to block California and other states from trying to independently reduce emissions. What are you seeing down the road that you might be able to share with us, in terms of the risk of maybe stricter pollution requirements? Thank you.

Well, all throughout our operations, Steven, that's something that also belongs in the energy bill and energy costs. But it also belongs to all the other side in the sustainability of our operations. All through our operations, I was going to say, the substitution with alternative fuels is something that we're doing as much as we can.

Of course, the more we can do in any place in terms of sustainable sources of energy is good for all our operations because today, in fact, some of these benefits from the wind farm that we're opening in Mexico could go into California, to our operations in California as clean development mechanism benefits. So it's a global world. We will do what we can in any and all places.

Okay. That's definitely fair enough. Thanks very much.

Thank you.

And our next question comes from the line of Dan KWIATKOWSKI from Schroder Investment Management. Please proceed.

Good morning. Just a couple of questions on your carbon credits. Can you tell me how many or how much carbon credits you sold in 2008, as a total?

Rodrigo, carbon credits, 2008. I have it here. It's $310m, the total carbon credit were sold in 2008.

And what was the figure for 2007?

None that I'm aware of. No? There was none.

Okay, and sorry to keep going on that. And in 2009 should we expect something similar for carbon credit sales or is this just a one-off for 2008?

Very difficult to say at this point in time. I wouldn't have an answer for that. There's no specific plan or reason. This is -- it's a market-driven issue.

But what I guess I'm asking is, is it recurring that you'll be able to sell carbon credits or is it just a one-off?

It could be. It really depends on how -- the evolution of the market. If demand drops and we have excesses, that is a possibility, and then if there is a market for them, also.

Well, if we consider that maybe 2009 is going to be -- is -- I'm sorry, the fourth quarter of 2008 is indicative of what to expect in 2009, should we expect similar levels of carbon credit sales, put it that way.

Again, it's totally market-dependent because the price is so volatile that it, again is difficult to ascertain anything on this issue.

Okay, thank you.

Thank you.

And our next question comes from the line of Nicolas Godet from Exane BNP Paribas. Please proceed.

Thank you. I guess my question is related to CO2 as well. You have not been selling more than your surplus in [2008]. I think this is my question.

Okay, (multiple speakers).

You have not anticipated for 2009 excesses of CO2 rights that you sold already in 2008.

Well, we have not really. We have not written that into our budgeting process. It is something, again, that is an opportunity that might be presented or might not.

Okay, thank you. Regarding taxes, what should be your cash tax rate in 2009, following what you said about tax credits?

Rodrigo?

Well, it is one of the most difficult lines for us to forecast because it is very dynamic. It is subject to many different variables from exchange rates to operations, to tax laws that change and evolve over time. And so we will do our best to manage the expense and, if possible, to defer the payment of the cash taxes. But it is very difficult to forecast, so we never do.

It's not going to be zero following --

It never has been zero.

Again, regarding cash generation, you now have a very low level of CapEx. How long do you think you can maintain this low level of CapEx spending?

Well, that is certainly something that we're doing now because the market is -- volumes are declining so there is less capacity, so that we can rationalize as much as we can demand against CapEx. But that cannot be maintained down forever because, as the market recovers, we will certainly be using more capacity. So that is something that is, of course, adapting to market conditions, nothing less.

Your maintenance CapEx to deprecation, what should be the level next year?

We will be giving more details on that next Wednesday.

Okay, thank you. And my last question is about Eastern European strategy. We're obviously seeing those markets being quite weak. What are you going to do with potential excess production out of Croatia and Latvia? Do you want to export? Do you want to limit your production?

Well, it is a regional market decision that we -- our people locally will have to decide and -- to see what is the best option for them. But certainly, again, in the same sense for all of our operations, we are rational players in the market. And when a situation like this is happening you have to adapt to market conditions.

Okay, thank you very much.

Thank you.

And our next question comes from the line of Michelle Dorea from Deutsche Bank. Please proceed.

Hi, good morning, everyone. I just wanted to know -- if you can address the non-recurring expenses and what to expect going forward in terms of derivatives, losses and goodwill impairments. Can you give us any idea what to expect this year?

Rodrigo?

Well, the -- we have taken away most of the volatility that we had on the derivative exposure as of the third quarter of last year. Clearly during the month of October-November we saw the combination of the two factors that forced us to revisit our strategy.

We had a -- at the same time that we had a tremendous increase in volatility for all financial instruments we also saw the tightening in the credit markets globally. And so that forced us to rethink our exposure management strategy and we reduced, as I've mentioned, 85% of the cross-currency exposure we had to derivatives. And we also have significantly diminished the risk of future margin calls on the equity derivative portion of our strategy.

So we believe that we have taken the actions that will allow us to have less volatility going forward. Of course, we will continue to look for the opportunity to diminish that volatility even further if we can. And we will do so when the opportunities arise.

Regarding one-off charges, such as the impairment expense, well, this is a one-year event. You have to test every year towards the end of the year and if there is a need for a further impairment, then you need to take action at that time. It is very difficult for us to say today whether or not one will be necessary.

Okay, thank you.

Thank you.

(Multiple speakers). We have time for one --

Okay.

I'm sorry?

No, go ahead.

Go ahead, please.

We have time for one last question. And this one comes from the line of [Harry Bremner] from [Imminence Capital]. Please proceed.

Hi, guys. A quick question on the carbon credit sales. So just to reiterate, so the $158 million this quarter, you have no visibility as to whether that's recurring or not, so should we look at it as $808 million of EBITDA less that $160 million as the run rate for Q4 and extrapolate from there as to how next year's looking? Would that be reasonable? That's one.

And the second question is, given that you have $4.1 billion of maturities coming up this year, it looks like it's a pretty difficult environment to go through with asset sales. Would you consider a rights issue and buy some kind of breathing room, and be in a better position to negotiate with your potential buyers for these asset sales?

Well, the issue of what is the run rate for the EBITDA next year and all of next year's -- that is '09 operating and financial projections, we would like to defer that to our Wednesday presentation. We'll be able to give you more details.

But Q4 run rate would have been something like 650 if you did not include the carbon credit sales, right?

I think it's important to mention that we do have quite a seasonable business. We tend to always have a much stronger second and third quarter than a first or a fourth quarter, because many of our markets are exposed to weather, cold, rain, snow and the like. And so it is a seasonable business. It is -- it wouldn't be proper to try to annualize our run rate from any one of the quarters for the full year. We always have to look at the trailing 12 months and that's what we do.

Got it.

I think in the case of the CO2 emissions, well, I would say that you should also not look at them independently. They are part of the integral energy strategy. And so in a year, for example, as 2008, when the energy input costs went up, well, the carbon credits helped us to offset some of those input cost inflation.

There may be other times when the cost of energy is going down and, so, we do manage it as an integral strategy that what it intends to do is diminish volatility and increases predictability of our future input costs. You may not benefit as much when the cost of energy is going down as fast as it has been, but then you're not going to be as hardly impacted when the cost is rising. So it takes away volatility. We believe generating results with greater stability is valuable and we try to deliver that.

Yes, on the second question, Rodrigo?

On the question of the rights issue, we will monitor the market. Clearly, there are lots of options that we're pursuing before considering that. We would much prefer to sell assets or to refinance and extend maturities as much as we can before resorting to those options. But we have to look at all the alternatives and, clearly, we need to do the ones that maximize shareholder value in the short, in the medium and in the long term. I don't know if we can say anything more at this point.

Well, as we have already commented throughout the call today, we are committed to reducing down debt and recovering our financial flexibility so that we can continue our value creation process.

Right. But just given the debt burden right now, in fact, in Q4, if you look at the free cash flow that you've disclosed, $195 million plus $300 million in asset sales, that's close to $500 million of free cash flow. And I know some of that went towards closing derivatives positions. But then even after the debt classification from perps to term loans, the net debt balance has still gone up in spite of the euro weakening against the dollar. So I guess I'm a little concerned that we have to go through an extraordinary amount of asset disposals where our buyers know our weak hand.

Well, let me just say this and, of course, we hope to expand on next week's conference, that all throughout this time we have not been just sitting waiting for people to come and buy things from us, we have been working.

Right.

So let's wait for the results of our work.

Right. No, thank you.

Thank you.

Well, thank you very much. And in closing I would like to thank you for your time and attention. I would also like to remind you to join us on the webcast of our CEMEX Day presentations on February 4. Please check our website for detailed information on the event. And we look forward to your continued participation in CEMEX. And feel free to contact us directly or visit our website at any time.

Thank you and good day to all.

Thank you for your participation in today's conference. This concludes today's presentation and you may now disconnect, and have a great day.